FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements

Prepare the statement of profit or loss and financial position for Tudu Ltd with adjustments for depreciation, allowances, and accruals.

Question

The following balances were extracted from the books of Tudu Ltd on 31 December 2018.

Additional information:

Inventories at 31 December 2018 was valued at GH¢18,226.
Directors’ bonuses for the year ended 31 December 2018 calculated at GH¢1,160 have not been accounted for.
Distribution costs include a payment of GH¢3,750 for rent for the three months to 28 February 2019.
The company’s depreciation policies are as follows:
- Fixtures and Fittings – Straight line over 5 years.
- Motor vehicles – Reducing balance method at 20% per annum.
- All non-current asset residual values are estimated at zero.
The company reviewed the trade receivables at 31 December 2018, and the following adjustments are required:
- Irrecoverable debts of GH¢450 in addition to those already written off.
- Specific allowance for receivables of GH¢650.
- General allowance of 3% against the remaining receivables.

Required:

a) Prepare the Statement of Profit or Loss for Tudu Ltd for the year ended 31 December 2018. (10 marks)

b) Prepare the Statement of Financial Position for Tudu Ltd as at 31 December 2018. (10 marks)

Answer

a) Tudu Ltd – Statement of Profit or Loss for the Year Ended 31 December 2018

Particulars	GH¢	GH¢
Sales		495,000
Less: Cost of Sales (W1)		(282,774)
Gross Profit		212,226
Less: Operating Expenses
Wages	(84,500)
Distribution Costs (22,000 – 2/3 * 3,750)	(19,500)
Electricity	(9,500)
Telephone	(1,600)
Administration Expenses	(40,880)
Directors’ Remuneration	(32,000)
Directors’ Bonus	(1,160)
Irrecoverable Debt Expense (1,200 + 450)	(1,650)
Increase in Provision (W2)	(1,439)
Depreciation – Fixtures (W3)	(19,640)
Depreciation – Motor Vehicles (W4)	(9,100)	(220,969)
Loss before Interest and Tax		(8,743)
Less: Finance Costs (5% x 25,000)		(1,250)
Loss for the Year		(9,993)

b) Tudu Ltd – Statement of Financial Position as at 31 December 2018

Particulars	GH¢
Non-Current Assets
Fixtures and Fittings (W3)	71,260
Current Assets
Inventories	18,226
Trade Receivables (W4)	52,671
Prepayments (2/3 x 3,750)	2,500
Cash	160
Total Current Assets	73,557
Total Assets	144,817
Equity & Liabilities
Equity
Share Capital	50,000
Retained Earnings (23,700 – 9,993 – 5,200)	8,507
Total Equity	58,507
Non-Current Liabilities
5% Loan Stock	25,000
Current Liabilities
Trade Payables (W5)	59,710
Bank Overdraft	1,600
Total Current Liabilities	61,310
Total Equity and Liabilities	144,817